Tuesday, May 27, 2008

STI June Performance

This is the performance of STI in June from 1988 onwards.

Entry DateEntry PriceExit DateExit Price% ChangeDraw Down %Max Gain %Bars Held
6/1/198810066/30/198810938.620.008.6218
6/1/198912796/30/198913082.23-5.642.8221
6/1/199015566/29/19901527-1.85-2.130.7920
6/3/199115666/28/19911490-4.84-4.840.0017
6/1/199215116/30/19921481-1.95-2.270.8120
6/2/199318956/30/19931803-4.88-9.140.2720
6/1/199422806/30/19942225-2.43-3.651.2921
6/1/199521806/30/19952093-3.97-5.351.8021
6/3/199623326/28/19962296-1.55-2.780.6518
6/2/199720656/30/19971988-3.74-4.680.0720
6/1/199812546/30/19981067-14.94-17.740.0021
6/1/199919106/30/1999216813.49-0.3715.8821
6/1/200018106/30/2000203812.61-0.0415.7221
6/1/200116636/29/200117273.79-1.083.7920
6/3/200216776/28/20021553-7.38-9.340.2719
6/2/200313676/30/200314485.92-0.1311.4320
6/1/200417876/30/200418382.83-1.133.2220
6/1/200521696/30/200522131.99-0.082.8221
6/1/200623946/30/200624351.71-4.862.1721
6/1/200735486/29/200735480.02-1.892.9420

Out of 20 June months, we have 10 winners and 10 losers. Interestingly from 2000 onwards, STI performed quite ok in June except for 2002 where it was down 7%.

Monday, May 26, 2008

STI Updates

Cracks are appearing on the STI chart.



The index closed below the lower part of the Bollinger band on Friday. Not a good sign. The Bollinger band has narrowed significantly compared to a few weeks ago. Market is searching for a reason to breakout of the trading range. Now it seems like high oil price has given the Bears reason to come back to sell down the market.

The –DI went above the +DI on 22 May 08. However the ADX is still below 20. This means that the market is weakening but it has not changed into a down trend yet.

The MACD chart is also looking bearish, having made a crossover on 20 May 08.

RSI chart is near the oversold region. The index is most likely to stay in oversold region for a few more days before it can stage a rebound.

The next support level is the pivot point of 3033 set on 14 Apr 08.

Tuesday, May 20, 2008

Pristine Shorting Method Case Study - AIG


There is a request to do a case study for shorting a stock using Pristine Method. Let’s pick a US stock as I have more historical data for US market.

I have selected American International Group (Symbol: AIG) and the data stretches from 1988 to 19 May 2008.

The trading rules:

Entry
1. Price made 3 or more consecutive higher highs
2. Price made 3 or more consecutive higher lows
3. Price made 3 or more consecutive white candles
4. When condition (1) to (3) is met, enter a short position at the low of the previous bar.

Exit
1. Exit after holding the trade for 3 trading days.

Here is the result

Entry DateEntry PriceExit DateExit Price% ChangeDraw Down %Max Gain %Bars Held
4/11/19884.1444/14/19884.251-2.58-3.040540.265453
8/22/19884.6938/25/19884.8-2.28-3.132330.255693
12/8/19885.14912/13/19885.0581.7701.767333
12/27/19885.16112/30/19885.209-0.93-1.317580.193763
1/30/19895.5852/2/19895.659-1.32-2.220230.519243
4/11/19896.1614/14/19896.1130.7801.769193
8/21/19897.2768/24/19897.2470.401.800443
10/23/19898.17410/26/19898.278-1.27-1.529242.226573
4/17/19907.4514/20/19907.4190.43-1.006570.429473
6/5/19907.8836/8/19907.7591.5701.902833
11/7/19906.65911/12/19906.881-3.33-3.378880.810933
2/5/19918.0332/8/19918.317-3.54-7.680810.958553
4/1/19919.2434/4/19919.722-5.18-5.420321.157643
4/5/19919.6374/10/19919.711-0.77-2.53191.328223
10/15/19917.82310/18/19917.97-1.88-3.042310.498533
3/23/19928.6843/26/19928.4692.4803.489183
7/17/19929.057/22/19929.121-0.78-0.784530.651933
8/3/19929.3468/6/19929.2870.6301.348163
9/3/19929.5569/9/19929.2762.9302.930093
10/22/199210.91910/27/199210.8740.4103.104683
11/16/199211.23611/19/199210.9482.5603.453193
12/1/199211.19612/4/199211.209-0.12-0.946770.803863
2/5/199312.3932/10/199312.280.9102.356173
3/1/199311.8163/4/199312.006-1.61-3.038250.211573
5/7/199312.8455/12/199312.6241.7201.821723
5/28/199312.6176/3/199312.752-1.07-2.203380.816363
9/29/199314.59610/4/199314.41.3402.404773
5/20/199413.65/25/199413.822-1.63-2.051470.397073
8/29/199414.1339/1/199413.8122.2702.271283
10/12/199413.20810/17/199413.242-0.26-1.105391.150823
3/15/199515.4433/20/199515.535-0.6-1.534680.459763
10/3/199622.68310/8/199623.187-2.22-3.465150.136673
11/1/199624.17111/6/199624.562-1.62-2.411980.028963
6/13/199732.4196/18/199732.3350.26-1.017931.058023
9/9/199734.4319/12/199733.9471.41-0.749323.903453
10/8/199736.35210/13/199736.0960.7-1.08661.642283
11/24/199734.91611/28/199733.8663.0103.445413
2/5/199837.7632/10/199838.161-1.05-1.607390.233043
3/18/199842.5763/23/199843.544-2.27-2.569521.188463
6/11/199845.6156/16/199844.3332.81-1.067632.810483
6/30/199848.1217/6/199849.491-2.85-3.07350.571473
11/27/199849.66712/2/199847.4454.47-0.066446.692573
12/22/199850.04612/28/199849.890.31-0.815242.162013
3/9/199959.8873/12/199961.473-2.65-2.867060.247143
4/1/199960.3394/7/199964.2-6.4-8.298120.415983
11/19/199969.54911/24/199967.2533.303.926733
1/18/200070.8511/21/200066.8125.707.714783
3/2/200055.6483/7/200053.9813-1.507694.339773
6/29/200075.8527/5/200075.928-0.1-2.502242.618263
12/11/200097.05912/14/200093.0074.1704.174773
4/20/200176.5844/25/200173.6863.7804.054383
7/17/200180.8677/20/200180.8690-1.183430.174363
3/1/200270.4823/6/200272.342-2.64-3.246211.628793
3/18/200271.663/21/200269.5742.9102.910983
5/3/200267.4625/8/200265.8382.41-1.040594.647053
2/19/200348.1582/24/200348.577-0.87-1.603061.196063
4/24/200354.494/29/200354.4140.14-0.523034.320063
12/27/200463.60612/30/200463.5810.04-0.536110.770363
2/14/200569.5732/17/200568.0262.22-0.071872.916363
5/31/200554.0396/3/200554.139-0.19-1.441550.784623
12/27/200566.13712/30/200566.968-1.26-1.995860.139113
3/15/200666.633/20/200667.319-1.03-1.912051.709443
5/11/200663.415/16/200662.5311.3903.958363
8/21/200662.2968/24/200662.0330.42-0.231151.264933
9/13/200663.6349/18/200664.537-1.42-1.547920.070713
10/6/200665.71610/11/200665.5060.32-0.348460.72893
10/13/200665.94410/18/200666.193-0.38-0.447350.555013
11/17/200670.41211/22/200670.486-0.11-0.698740.538273
12/10/200760.91112/13/200756.9596.49-1.733687.116943
1/15/200857.2781/18/200854.3095.18-2.596116.210063
2/28/200850.3573/4/200846.1488.36010.131653
4/21/200847.114/24/200844.256.0707.981323


There were 72 trades with 38 winners and 34 losers. In order to improve the system further, you can add in a simple 50 day moving average filter. That is, you will add the condition that the closing price must be less than the 50 day moving average before you are allowed to short the stock.

With the additional filter, you get the following result.
Entry DateEntry PriceExit DateExit Price% ChangeDraw Down %Max Gain %Bars Held
4/11/19884.1444/14/19884.251-2.58-3.040540.265453
10/15/19917.82310/18/19917.97-1.88-3.042310.498533
3/23/19928.6843/26/19928.4692.4803.489183
10/12/199413.20810/17/199413.242-0.26-1.105391.150823
11/24/199734.91611/28/199733.8663.0103.445413
3/2/200055.6483/7/200053.9813-1.507694.339773
4/20/200176.5844/25/200173.6863.7804.054383
3/1/200270.4823/6/200272.342-2.64-3.246211.628793
3/18/200271.663/21/200269.5742.9102.910983
5/3/200267.4625/8/200265.8382.41-1.040594.647053
2/19/200348.1582/24/200348.577-0.87-1.603061.196063
5/11/200663.415/16/200662.5311.3903.958363
2/28/200850.3573/4/200846.1488.36010.131653


There were a total of 13 trades with 8 winners.

Sunday, May 18, 2008

US Investors Say It's Time To Buy

Close to half the affluent US investors see the stock market as a “buy” with energy as the industry and Asia as the region to be.




Based on a poll conducted by Bloomberg/Los Angeles Times, 44% of those with household incomes of US$100,000 or more view it as good times to buy stocks versus 15% who say it isn’t.

The poll results signal some Americans may be ready to shift part of the US$3.5 trillion parked in money market funds into equities. The confidence also indicates they anticipate limited spillover among stocks from the financial crisis that has led to US$335 billion of losses and writedowns in that industry.


Extracted From: The Edge Singapore

Sunday, May 11, 2008

Swing Trading Method

This is a method described by Oliver L Verez in his book, “TOOLS AND TACTICS FOR THE MASTER DAY TRADER”.

The method uses candlestick pattern and the relationship between the highs and lows of the price bar to determine entry points.

Entry Rules
1. Price made 3 or more consecutive lower highs
2. Price made 3 or more consecutive lower lows
3. Price made 3 or more consecutive black candle (closing price is less than opening price)
4. When conditions (1) to (3) are met, enter a long position at the high of the previous bar.

Example of such a price pattern is shown below:



Exit Rules
1. Exit after holding the trade for 3 days.


Lets do a case study using Bio-treat.

Based on data from 2004 to 9 May 2008, the trading record is as follows:
Entry DateEntry PriceExit DateExit Price% ChangeDraw Down %Max Gain %Bars Held
5/19/20040.825/24/20040.831.22-1.82931.82933
6/24/20040.876/29/20040.93.4504.0233
12/14/20040.6512/17/20040.625-3.85-4.61542.30773
12/23/2005112/29/20051.055053
6/9/20061.066/14/20061.04-1.89-1.88681.88683
10/23/20070.7510/26/20070.7854.6705.33333
1/23/20080.6251/28/20080.654-46.43

There were a total of 7 trades with 5 winners and 2 losers.

Saturday, May 10, 2008

Dow Update


The Dow Industrial Average closed at 12745 points, down 120 points. For the week, the index was down 313 points.

The index is now resting at the lower trend line of the upward price channel. It is also near the 50% Fibonacci Retracement level.

Next week will be a critical week. Let’s hope the index will be able to stage a rebound from current levels.

Wednesday, May 7, 2008

Yield Curve Study

The yield curve is simply a ratio that is derived by dividing a long term yield with a short term yield.

For example, the yield for the US Treasury 3 month bill closed at 1.62 and the yield for the US Treasury 30 year bond closed at 4.66 on Tuesday. Therefore the value for the yield curve is 2.88 (4.66 divide by 1.62).

The steepness of the yield curve can be used to predict the performance of the stock market. This is because when the yield curve is steep, banks earn money by borrowing short term and to loan long term. The reverse happens when the yield curve is inverted or flat. Hence when the yield curve is steep, banks have every incentive to loan out as much as possible and to borrow to the limit of their reserves. And when that happens, there will be excess liquidity to drive up the stock market.

I have done a study by using the data from Yahoo (Symbol: ^TYX - 30 year bond and ^IRX - 13 week Treasury bill).


The trading rule is simple.

Enter
1. Compute the Ratio = (^TYX)/(^IRX)
2. If Ratio crosses value of 1.15, enter a long position

Exit
1. Closed the long position after 12 months.

The trading result is as follows:

Entry DateEntry PriceExit DateExit Price% ChangeDraw Down %Max Gain %Bars Held
6/2/1980850.856/1/1981991.7516.56-1.192921.170612
12/1/1981888.9812/1/19821039.2816.91-13.386121.314312
6/1/1982819.546/1/19831199.9846.42-6.047351.852312
8/2/1982808.608/1/19831199.2248.31-4.776255.913912
5/1/19902656.765/1/19912887.878.7-11.760614.065612
9/4/19902614.369/3/19913043.6016.42-10.329517.376712
2/2/19987987.462/1/19999405.4317.75-7.608922.184512
4/1/19988818.504/1/19999825.2911.42-16.315715.196112
8/3/19988868.108/2/199910654.8320.15-16.783727.666712
10/1/19987749.4210/1/199910335.6933.37-4.511847.481212
1/4/19999212.841/3/200011501.8524.85-2.372626.548212
4/2/20019877.164/1/200210402.075.31-19.744815.786512
9/4/200713358.39OpenOpen-2.91-13.84646.89889

Friday, May 2, 2008

30 Year Bond Yield Method

This method was described by Mark Boucher in his book “The Hedge Fund Edge”. The method makes use of 30 Year Treasury Bond Yield to decide whether to enter or exit the market.

The method is pretty simple. It will buy the S&P when the 12 month rate of change of the 30 Year Treasury Bond Yield is less than 9%. The position is held until the 12 month rate of change of the 30 Year Treasury Bond Yield exceeds 9% again.

According to his study from 1947 till end of 1997, the probability of win is around 65%.

When I run this same method with Dow Jones Industrial Average from 1979 till Apr 2008, I obtained the following results:



Entry DateEntry PriceExit DateExit Price% ChangeDraw Down %Max Gain %Bars Held
2/1/1979839.223/1/1979808.82-3.62-4.40770.56841
4/2/1979859.935/1/1979854.90-0.58-1.4712.87121
6/1/1979822.3311/1/1979815.70-0.81-3.203110.03615
3/2/1981974.585/1/1981997.752.38-1.93625.78712
12/1/1981888.981/4/1982875.00-1.57-2.94271.07091
3/1/1982824.3912/1/19831276.0254.78-6.657.322421
2/1/19841220.583/1/19841154.63-5.4-8.65410.48911
9/4/19841222.395/1/19872286.3687.04-5.537598.660832
5/2/19882032.339/4/19902614.3628.64-5.449448.807528
10/1/19902452.4811/1/19902442.33-0.41-4.41064.60231
12/3/19902559.657/1/19943624.9641.62-4.399856.382343
4/3/19954157.691/2/19976448.2755.09-0.673759.318321
3/3/19976877.749/1/199910828.4457.44-8.169866.172930
4/3/200010863.285/3/200410227.27-5.85-33.89236.785749
8/2/200410138.455/1/200611367.7812.13-4.717413.115521
10/2/200611678.99OpenOpen9.77-1.457722.270519


There were total of 16 trades with 9 being profitable.

STI Sideway To Bearish Tone

US market had a bad closing last night.  Dow plunged by 243 points.  It seems like we are seeing more volatility recently.  With earnings...